Social Security (Up-rating of Benefits) Bill

Baroness Stedman-Scott Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Tuesday 27th October 2020 Lords Chamber

[Baroness Sherlock (Lab) [V]]

My Lords, I am grateful to the noble Lord, Lord Addington, for explaining what his amendment would do, and to other noble Lords who have spoken in pursuit of clarity. The noble Baroness, Lady Altmann, raised the issue of the uprating of pension credit and the standard minimum guarantee in particular. I will return to that in more detail when I move my Amendment 3 shortly.

The Bill is permissive rather than prescriptive. The Explanatory Notes say that it will

“allow the Government to meet its commitment to the Triple Lock.”

At Second Reading, the Minister was invited by many noble Lords to tell the House if it was indeed the Government’s intention to increase the state pension in line with the triple lock, but she simply repeated the formula that the Bill

“will allow the Government to maintain their manifesto commitment to the triple lock.”—[Official Report, 13/10/20; col. GC 309.]

Had she been able to go further, she might have obviated the need for much of the debate we are having at the moment.

The Minister was also asked at Second Reading whether the Government intended to stand by the manifesto commitment to the triple lock for the rest of this Parliament. As the noble Baroness, Lady Janke, pointed out, there have been various rumours and briefings swirling around that have cast some doubt on the future of the triple lock. But answer came there none.

I realise that the Minister is in a difficult position. She probably thinks it unreasonable of us to ask her to answer these questions because the decisions are not hers, but she speaks for the Government in this House. We are being asked to fast-track this Bill to enable the governing party to fulfil a manifesto commitment, although the Government will not tell us whether they are going to fulfil it. It does not seem unreasonable to ask for a bit more clarity. I look forward to her reply.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Stedman-Scott) (Con)]

My Lords, I thank the noble Lord, Lord Addington, for the first amendment and for clarifying the date to which he referred. His charm clearly works better than mine.

The purpose of the Bill is to allow the Secretary of State to increase the specified pensions and benefits for 2021-22. This then allows the Government to deliver their triple lock commitment. However, the actual rates of increase for each of these pensions and benefits are subject to the Secretary of State’s annual statutory uprating review. In presenting this urgent Bill, the Government have sought to replicate the powers given to the Secretary of State in the founding legislation, as was also the case in 2009.

This amendment would also apply the triple-lock formula to the pension credit standard minimum guarantee and to widows’ and widowers’ industrial death benefit for 2021-22. The triple-lock commitment does not apply to those benefits. By convention, the relevant widows’ and widowers’ benefits keep pace with the basic state pension.

In previous years the Government have sought to match the basic state pension cash increase in the pension credit standard minimum guarantee, where this increase has been higher than an amount generated by the increase in average earnings; that is the statutory minimum for uprating the standard minimum guarantee. As a result, the standard minimum guarantee for a single person is now nearly £10 a week higher than it would otherwise have been. For a couple, it is nearly £15 a week higher. The decision on how to uprate the standard minimum guarantee next April will be made during the Secretary of State’s uprating review and will be announced in November. These rates too will be subject to the Secretary of State’s statutory review in November.

The noble Baronesses, Lady Altmann and Lady Janke, asked whether the Government are going to honour their commitment to the triple lock and introduce the 2.5% element. As I have said, the Bill makes technical changes for 2020-21 which will ensure that state pensions can be uprated even though there has been no growth in earnings. This will allow the Government to maintain their manifesto commitment to the triple lock, including the 2.5% element.

The noble Baroness, Lady Janke, asked by how much the state pension will be increased this year. The Bill enables the Secretary of State to uprate state pensions in 2021-22. Every autumn, the rate of state pension increase is subject to the Secretary of State’s uprating review to which I have already referred. It would not be right to pre-empt the outcome of this review. The triple lock is a manifesto commitment under which the rate of the state pension will increase by the highest of the growth in earnings and prices, or 2.5%.

The noble Baronesses, Lady Altmann and Lady Sherlock, raised the uprating of pension credit. Without this Bill, the core component of pension credit—the standard minimum guarantee—will be frozen in 2021-22. The decision on how to uprate the standard minimum guarantee will be made during the Secretary of State’s uprating review. Your Lordships will have the opportunity to debate the uprating of the state pension, pension credit and other benefits when the draft order implementing the Secretary of State’s decision is brought before Parliament for approval in the normal way. I therefore ask the noble Lord to withdraw the amendment.

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[Baroness Sherlock (Lab) [V]]

My Lords, I thank the noble Lord, Lord Randall of Uxbridge, for explaining his amendment to us. He is a strong advocate for this cause and I am very sympathetic to the position in which many pensioners find themselves. However, it is a difficult issue, which successive Governments have struggled to resolve.

Perhaps I may ask the Minister some specific questions. First, we have heard that 500,000 people living in other countries are affected in this way. Can the Minister confirm that figure? How much does she believe that it would now cost to change the rules?

Secondly, the noble Lord, Lord Randall, both today and at Second Reading, highlighted two particularly difficult sets of cases. The first was the position of veterans. Today, he mentioned Harry Penny, Roger Edwards, Patricia Coulthard and others, and I am still thinking about Anne Puckridge, whom he mentioned at Second Reading—the 95 year-old World War II veteran whose pension was frozen when she moved to Canada at the age of 76 to be near her family. It is hard to see the justice in those who fought for this country being denied the pensions that they earned simply because they moved abroad to be with their families in their later years and did not realise what would happen. Do the Government know how many veterans are in this position?

The noble Lord also mentioned at Second Reading the case of Monica Phillips, who emigrated to the UK in 1959 as part of the Windrush generation. After 37 years working here, she returned to Antigua to look after her mum and her pension was then frozen. Again, do the Government know how many of the Windrush generation are affected by this measure? Have they looked into it?

Thirdly, the noble Lord, Lord Randall, also raised today the issue of reciprocal agreements in the wake of Brexit. I have to say to him that I have pursued that issue for some time but have got precisely nowhere. All that Ministers will ever say is that they hope to get a deal, so the position will be as set out in the negotiating documents. However, I will be very interested to see whether he gets any more information than I have been able to obtain.

This issue is so difficult because so many people assume that their pension is determined by what they pay in national insurance contributions rather than where they live when they retire. Therefore, can the Minister assure the Committee that the position is now made abundantly clear to all pensioners, especially as they approach pension age? I look forward to her reply.

[Baroness Stedman-Scott (Con)]

My Lords, I turn to the amendment to Clause 1 tabled by my noble friend Lord Randall of Uxbridge. As he is aware, it would in practice have no effect because it simply commits the Government to uprating UK state pensions, as they do now.

However, my noble friend spoke passionately at Second Reading, and again with great passion and commitment today. He eloquently shared with us the case studies of people impacted by the lack of reciprocal arrangements and the freezing of pensions. The long-standing policy of successive Governments for over 70 years has been that UK state pensions are payable worldwide and are uprated in countries overseas where there is a legal requirement to do so—for example, in countries where the UK has a reciprocal agreement that requires uprating. I look forward to the debate on the issue but, first, I would like to make some points about our reciprocal agreements with other countries.

The UK has reciprocal agreements with several countries, and most of these require uprating. There are only two reciprocal agreements which do not allow for uprating: those with Canada and New Zealand. A similar agreement existed with Australia until early 2001, when the Australian Government withdrew from it. Unlike the UK, Canada and New Zealand have residence-based state pensions. The reciprocal agreements with them broadly allow for periods of residence, employment or contributions in one country to be considered as periods of residence, et cetera, in the other for the purposes of entitlement to a state pension.

The systems in New Zealand and Canada are also means-tested to some extent. For example, New Zealand takes overseas pensions fully into account in its superannuation schemes. New Zealand law also requires that notional income is calculated if a pensioner does not claim his or her state pension from an overseas country. This means that any future state pension increases would be taken into account and the moneys would go to the respective Treasuries, so pensioners on the lowest incomes are unlikely to benefit from increases in their UK state pension. It might also mean an increased tax bill for some overseas residents and the loss of their welfare benefits in their chosen country of residence. This Government believe that our responsibility is to pensioners living in this country, rather than effectively making payments to other Treasuries.

The agreements with Canada and New Zealand were negotiated and agreed some time ago. The pattern of the UK’s reciprocal agreements with other countries is historic. It is based in part on Commonwealth ties but also on the political context at the time of concluding the agreement. That gives rise to inconsistencies. For example, we have an agreement with some Caribbean countries, such as Jamaica, but not with others. The agreement with Jamaica requires uprating. It has been suggested by some that uprating could form part of discussions on future free trade agreements—for example, with Australia and Canada. However, state pensions are not in scope of free trade agreements.

There are no plans to change the policy on uprating UK state pensions overseas. The Government have not entered into a new reciprocal social security agreement since 1992, as my noble friend Lord Randall referred to, and have no plans to enter into new agreements.

The noble Baroness, Lady Sherlock, asked about the number of pensioners living in frozen-rate countries. It is approximately 500,000. I regret that I do not have any numbers for veterans.

My noble friend Lord Randall raised, as did other noble Lords, the question of a moral obligation to rectify this anomaly. The policy on this issue is long-standing, as I have already said, and one of successive Governments. It has been in place for some 70 years and, although I know this will disappoint noble Lords, there are no plans to change it.

My noble friend and the noble Baroness, Lady Sherlock, talked about the impacts on the Windrush generation. UK state pensions are payable worldwide to eligible people based on their NI record. I regret to tell the noble Baroness that we do not know the number of people affected among the Windrush community.

My noble friend Lord Randall asked about pensioners who are resident overseas who have paid their NI contributions, so pensions payable abroad should be fully indexed. The rate of contribution paid is never earned entitlement to the indexation of pensions payable abroad. This reflects the fact that the UK scheme is primarily designed for those living in the UK.

My noble friend Lord Randall raised the issue of consistency across countries, and a particular point about Canada. Canada has a bilateral agreement with the UK that does not cover uprating. The UK sought a reciprocal agreement with Canada that included uprating, but this was rejected as legislation prevented Canada paying its pensions overseas.

My noble friend Lord Randall and other noble Lords raised the issue of the Government’s moral duty to uprate state pensions overseas. The decision to move abroad is voluntary and remains a personal choice, dependent on the circumstances of the individual. For a number of years, advice has been provided to the public that the UK state pension is not uprated overseas except where there is a legal requirement to do so.

Given that the amendment states that any uprating order made under the Bill would uprate abroad in cases where there was already a legal requirement to do so, I urge my noble friend to withdraw it because it has no practical effect, given that the Government are already required to do that in law. However, I welcome the opportunity he has presented to debate the broader issue of uprating overseas.

[The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)]

My Lords, I have had no requests to speak after the Minister.

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[Baroness Stedman-Scott (Con)]

My Lords, I thank all noble Lords who have contributed to the discussion on these two amendments. I want the House to understand that I share noble Lords’ concerns about pensioner poverty, and assure the House today that we are committed to ensuring economic security at every stage of their life, including when they reach retirement.

The triple lock improves incomes for current and future pensioners. Auto-enrolment into workplace pensions and action on fuller working lives will also help people towards the income that they aspire to in later life. Pension credit provides an important safety net for pensioners on low incomes. As I mentioned in our earlier debate on the amendment from the noble Lord, Lord Addington, that safety net is currently nearly £10 per week higher for a single pensioner, and nearly £15 per week higher for a pensioner couple, than it would otherwise have been if we had just increased it in line with earnings since 2010. Material deprivation among pensioners is at a record low, and the absolute poverty rate is lower than in 2010.

In the long term, it is this Government’s reform to the state and private pension systems—including the introduction of the new state pension in 2016—that will improve outcomes for all, and particularly help to reduce gender inequality in retirement income. Over 3 million women stand to receive an average of £550 more per year by 2030 after recent reforms to the state pension alone.

Under the new state pension, outcomes are projected to equalise for men and women by the early 2040s, over a decade earlier than under the old system. For future pensioners, auto-enrolment into workplace pensions has transformed pension saving for millions of workers. Our employer-led strategy on fuller working lives aims to maximise the labour market opportunities for people to earn and save for longer.

Amendment 3 prevents a draft uprating order from being laid before Parliament unless the Secretary of State has laid before Parliament

“a report containing an assessment of the existing levels of pensioner poverty in each of the regions and nations of Great Britain”,

and made

“a statement outlining the expected impact of the draft order on pensioners with the lowest incomes.”

With respect to subsection (a) of her amendment, the noble Baroness, Lady Sherlock, will be aware that my department publishes annual estimates of pensioner poverty at a regional level in the Households Below Average Income series.

I turn to subsection (b) of Amendment 3, and will address Amendment 4 at the same time. Amendment 3(b) would require a statement outlining the expected impact of the draft order on pensioners with the lowest incomes. Amendment 4 would require the Secretary of State to report on the impact of the Bill and of the triple lock on pensioner poverty, with reference to women. The provisions in the Bill can only be used to increase the rates of state pension and certain other pensioner benefits, so its effects on pensioner incomes, and therefore pensioner poverty, can only be positive. However, I am sorry to inform noble Baronesses and noble Lords that we do not believe a report of the sort outlined in these amendments could be made with an acceptable degree of analytical robustness.

To make an assessment relating to how many pensioners might have their income lifted above the various low-income levels, assumptions would need to made about how each individual pensioner’s income will change in future. This would require making assumptions about, for example, how earnings for pensioners will change, or trends in the rate of return and drawdown of income from investments. These projected incomes would then need to be compared to projections of the various income thresholds.

The relative poverty low-income threshold in a particular year is determined by the increase or decrease in median income across all individuals in the UK. Forecasting a relative income threshold requires making assumptions about how the net income of every individual in society will change, not just of those above state pension age. Each individual’s total net income is influenced by how every different source of income, including their earnings, and their costs, such as housing costs, may change in future. Making assumptions about future changes in net income for individuals involves complex interactions between income and outgoings.

For absolute poverty, the threshold is increased each year by inflation during that year. As demonstrated in recent months, inflation is currently extremely volatile and there is a high level of uncertainty about what its level is likely to be over the next few years. In the current circumstances, with a higher level of uncertainty around the economy than usual, it is impossible to forecast individual pensioner incomes or the various low-income poverty thresholds with a reasonable degree of accuracy. Therefore, there is a very high risk that any analysis seeking to forecast the number of pensioners moving above these projected poverty thresholds is highly likely to be misleading.

I note, however, that my department collects and publishes a wide range of data in this policy area, such as national statistics on the number and percentage of pension-age women on low incomes. This is published annually in the report on households below average incomes. The last publication covered data for 2018-19, and trends over time can be identified from this source. These trends are an important element in policy-making in the department, such as that which led to the state and private pension reforms I mentioned earlier.

The noble Baroness, Lady Sherlock, raised pensioner poverty. I am assured that since 2009-10, material deprivation for pensioners has fallen from 10% to 6% and that there are 100,000 fewer pensioners in absolute poverty before and after housing costs. To be clear, in 2021 we are forecast to spend over £126 billion a year on pensioners, including £102 billion on the state pension.

The noble Baroness also raised the Independent Age report. The figures in Independent Age’s latest report are based on assumptions about the relationship between healthcare outcomes and income and rely on survey data. We know that pension credit is often underreported in survey data; unfortunately this makes it inherently difficult to categorise groups based on receipt of pension credit or to identify pensioners who may be entitled to pension credit but who, for whatever reason, are not claiming it.

The noble Lord, Lord Shipley, asked what the Government are doing about women and the gender gap. While the triple lock continues to improve incomes for current and future pensioners, in the long term it is reforms to the pension system that will improve outcomes for women and reduce the gap.

I move to the issue of pension credit, which all noble Lords raised very eloquently and clearly. In response to the question of the noble Lord, Lord Foulkes, yesterday, I agreed to go back to the department and relay the sentiments; while I cannot give your Lordships the information on a campaign you require today, I can give an utter assurance that I will go back to the department to relay the points that have been made.

The right reverend Prelate the Bishop of St Albans asked about an impact assessment. For pensioner incomes, assumptions would need to be made about how each individual pensioner’s income will change in the future, which would require making assumptions, as I have said, about many things, such as earnings for pensioners, change in the rate of return and drawdown of income. This is most difficult.

The noble Lord, Lord Addington, and the right reverend Prelate the Bishop of St Albans quite rightly raised a point about intergenerational fairness and questioned why we should keep the triple lock for pensioners when working-age people are only getting CPI increases. We have recently seen rises in the living standards of pensioners, but we must remember that not all pensioners are in the same position: over a million current pensioners rely solely on their state income. We must not forget that today’s working-age people are tomorrow’s pensioners, and future generations of pensioners will also benefit from the way the state pension is uprated today.

I was asked how we intend to uprate pension credit. Without this Bill, the core component of pension credit—the standard minimum guarantee—will be frozen in 2021. The decision on how to uprate the standard minimum guarantee will be made during the Secretary of State’s uprating review and announced in November. It would not be right to pre-empt the outcome of that review. Taking into account the points raised, I ask the noble Baroness to withdraw her amendment.

[The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)]

My Lords, I have received no requests to speak after the Minister. I call the noble Baroness, Lady Sherlock.

[The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)]

Even in the hybrid House, the Minister can respond to a final set of questions.

[Baroness Stedman-Scott (Con)]

I say to the noble Baroness, Lady Sherlock, and all noble Lords, that I have taken on board the ideas that have been put forward about pension credit: the campaign, and the importance of how it can lift people out of poverty and improve their lives. I will go back to the department, then return and answer the questions asked by the noble Baroness. I will always make that undertaking and will never shy away from answering questions, but I would rather get the right answers rather than give a wrong one and create another little tsunami on pension credit. If the noble Baroness can accept that, I will be grateful.

[Baroness Sherlock (Lab) [V]]

I am very grateful to the Minister for coming back on this. I will look out for those responses, and for the opportunity to discuss them on the Floor of this House. I thank her for her intervention, for addressing the questions and for her constant willingness to talk to us. These things make our debates much better.